Investigating the Effect of Direct Tax on the Income Distribution in Iran

Due to importance of the income distribution in society and the consequences of unfair income distribution, identification of various angles of this phenomenon is so urgent. As one of the most important institutions of the country, government can achieve a fair income distribution by implementing appropriate fiscal policies such as tax. Therefore government provides income equality of different population deciles and makes progress in fair income distribution. Given the importance of taxes in income distribution, the impact of direct taxes implementation on income distribution is tested through Auto Regressive Distributed Lag (ARDL) Method during the period 1978-2012, and their relationship to economy of Iran is investigated by testing existing theories in this context. The experiential results of this study indicate that implementing tax on people’s income improved income distribution and reduced inequality in different deciles income during the study period in Iran. Based on the findings, if the government identifies various layers of population with different incomes cautiously, and implements this policy properly, it can be very effective in income inequality reduction, and so poverty reduction.